Specialist
Former VP at Cano Health
Agenda
- Where it all went wrong for Cano Health (NYSE: CANO)
- Mass lay-offs, market exits and ability to shed non-core assets
- Balance sheet analysis, including viability of receivables and other short-term monetisation opportunities
- CEO departure, executive team commentary and priorities for incoming leadership
- Potential sale, scenario analysis and strategic assessments
Questions
1.
Given the news on 10 August 2023, where did it all go wrong for Cano Health? Feel free to start at the SPAC merger or more recently if relevant.
2.
How much ability does Cano have to shed non-core assets to stay solvent? Which assets do you think could be divested from beyond the market closures and staffing reductions that the company announced on 10 August 2023?
3.
About 40% of Cano’s planned workforce reductions will be attributable to existing operations in certain markets, with the remainder coming from consolidation efforts in other administrative functions. The latter is a pretty substantial portion of the personnel. What disruption do you think this will cause for business operations and patient care in the immediate term?
4.
Do you think Cano is tapped out or is there any further corporate glut the company might be able to trim to preserve whatever margin is left?
5.
If patients do leave Cano’s network due to bad publicity, departing physicians or a reduction in care quality, what impairment might this incur on the company’s patient membership value? CVS put a lot of emphasis on the membership pool in the Oak Street deal.
6.
Does Cano have to let providers out of contracts if it can no longer pay them or potentially in other clauses such as a financial duress clause? How restrictive are those agreements?
7.
Cano is consolidating its operations in Texas and Nevada and closing about 50% of its centres in each state. Within those geographies, how should we be thinking about which centres stay and which go? Is it purely up to clinic EBITDA or are there other considerations such as geographic density, owned vs licensed facilities, etc? I think the lion’s share are licensed.
8.
What does Cano need to focus on in its remaining markets to keep costs of care under control? What are the key priorities – patient engagement, risk adjustment coding or otherwise?
9.
Cano’s 10K states that according to the terms of its partnership with Humana, care coordination payments are refundable to Humana on a pro-rate basis if the company ceases to provide services of the centres within the specified contract term. How will MA [Medicare Advantage] players in the Cano network such as Humana respond to the mass lay-offs and closures? What’s the likelihood that contracts will be terminated?
10.
How monetisable are the receivables payments on the balance sheet? Cano has around USD 233.8m of accounts in notes receivable, which is almost equal to its effective market capitalisation today. 63.7% of the accounts receivable was comprised by two payers at the end of 2022, I assume Humana being one of them. Am I correct in assuming that those are bundled payments not yet received or surplus payments from payers? What’s the risk of either bad debt or payer restructuring on those assets?
11.
How liquid are the USD 79m of miscellaneous short-term assets? Do you see any major roadblocks to freeing up capital there?
12.
We talked about the stickiness of the provider base earlier, but how should we think about valuing Cano’s provider network?
13.
Do you believe that Cano can ultimately generate free cash flow? Is MA or value-based primary care a profitable space overall? How viable is the capital-light model you mentioned?
14.
Cano is now exploring a sale. How likely is it that someone would purchase the company in its current state? If so, what kind of entity?
15.
Could you expound on the value of splitting up Cano and selling it in parts? What divestitures might be the most feasible and to which strategics?
16.
Do you think CVS would ever snap up Cano to combine it with Oak Street? I appreciate Oak Street is operating the plurality of its lives on fee-for-service.
17.
What are your thoughts on Cano ousting Founder Marlow Hernandez and bringing in Mark Kent as interim CEO in June 2023? Is this too little, too late for the company? What could Mark realistically accomplish to provide some breathing room?
18.
Could you walk us through a scenario analysis for Cano for the next 3-6-9 months, providing some potential outcomes or resolutions for the company’s story over that time frame?
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